It's A Good Thing North Dakota Democrats Didn't Get Their Way On Taxes And Spending

During the legislative session earlier this year Democrats were in attack mode over two budget concerns.

For one thing, they were worried that concerns over low oil prices would have the Republican majority spending too conservatively. “The sky is not falling here,” Senate Minority Leader Mac Schneider, a Democrat from Grand Forks, said. “We don’t have to say ‘no’ in addressing some of these critical needs that exist.”

For another, Democrats were over the top with hyperbole about reforming the state’s oil tax, removing massive exemptions triggered by low prices which could have caused multi-billion dollar swings in revenues had they been allowed to take effect. The words “nightmare scenario” were used by Democrats to describe what would happen in oil tax reforms went through.

Now we’re several months removed from the legislative session, well into an on-going oil price rout and nearing the end of calendar year 2015, and while there is still plenty of anxiety over state revenues (for good reason) it seems the state’s finances are stronger because Democrats didn’t get their way.

Below is a revenue update prepared by Legislative Council and given to lawmakers yesterday (one friendly lawmaker shared it with me). What it tells us is two things.

First, general fund revenues are coming in under projections so far in the biennium. About 10.5 percent under projections, so far.

That’s not good, but it’s tempered by the second data point in the report which is oil tax revenues, which are coming in more than double what the forecast called for. The reason for that is the aforementioned oil tax trigger never went into effect. In order for the trigger to, well, trigger oil prices had to average below a certain amount set in state law for five consecutive months. In the fifth month a small rally in oil prices put the average above the trigger level, killing the exemption.

But lawmakers budgeted for a forecast that assumed the trigger hit. Because it didn’t hit, revenues are coming in significantly higher than official expectations:

Which brings us back to the Democrats.

They wanted to keep up boom era levels of spending growth despite clear indications that revenues were going to be weak. To be clear, the state still increased spending, it just wasn’t the free-for-all the peak oil boom years saw and which Democrats apparently still wanted even as oil prices cratered.

They also opposed oil tax reforms, preferring to keep in place an oil tax trigger which would have caused wild swings in revenues. While the state got lucky and avoided the trigger for this year, the clock is counting on the trigger hitting in December. Though at that point the impact will be minimal because the law phasing the trigger out takes effect on January 1. But imagine if that law didn’t take effect.

The state would not not only find itself in a general fund revenue pickle, but an oil tax revenue pickle as well.

I’m not saying Republicans have done everything perfect. I wish we hadn’t increased spending so much in previous bienniums – particularly spending on buying down local property taxes which I think is going to come back and bite us – but let’s all be glad Democrats didn’t get their way.